2/17/2009 @ 4:00PM

America's Most Popular Stores

The economy is still in its downward spiral: The National Retail Federation predicts a 2.5% decline in sales during the first half of 2009. In other words, consumers are holding on to their money. But those who are willing to spend at least some are more satisfied with retailers than they were several months ago.

Among department and discount stores, Nordstrom and Kohl’s lead the pack when it comes to shopper approval.

After a year and a half of plunging numbers, the American Customer Satisfaction Index (ACSI), a national economic indicator of the quality of products and services in the U.S., climbed 0.9% to 75.7 on the 100-point scale in the fourth quarter of 2008, compared with the same period on 2007. The index surveys about 19,000 consumers quarterly on their preferences in the retail, finance, insurance and e-commerce industries.

Consumers may be happier with their shopping experiences, but unfortunately, the rise in satisfaction does not necessarily indicate that an economic turnaround is on the horizon. While an uptick in the ACSI in 2001 signaled a rebound in the economy was nearing, the current recession is not following the same patterns as earlier economic slowdowns, experts say.

“Consumer spending has continued to weaken, while savings have increased, suggesting at least for the short term, there will be less revenue for sellers and more pressure on profit margins and for cost reductions,” says professor Claes Fornell, head of the ACSI and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference.

Competition for Customers

Customer satisfaction in the retail sector, which includes department and discount stores, specialty retail stores, supermarkets, gas stations and health and personal care stores, gained 1.3% to 75.2. This growth was predominantly based on an improvement in customer service, Fornell says.

“As the economy slumps, more pressure is on retailers to make a sale, [which] forces them to pay attention to customer experience.”

The department and discount stores and specialty retail categories each jumped 1.3% in their ASCI ratings, to 74 and 76, respectively.

Nordstrom retained its score of 80 on the ACSI based on its strength in customer service, while Kohl’s rose 1.3% to also reach 80. Kohl’s is known for offering brand-name items and exclusive merchandise at value prices.

Trading Down

Discount store Dollar General plunged 3.8% to a rating of 75. But the store’s poor mark was not attributed to declining customer service, quality or availability of merchandise. It was a result of changing demographics, Fornell says.

“Over the past year there has been a migration of a higher socioeconomic group of shoppers to the store, and these customers tend to be harder to please and have higher standards.”

After hitting an all-time low last year, retail giant Wal-Mart made the biggest leap, soaring 2.9% to a score of 70. But the retailer posted mixed results in its individual categories, sliding 4%to 68 for its supermarket business, well below the industry average, but rising 3% for its non-grocery business, to 70.

The reason Wal-Mart appears so low in the index, despite its current financial success, is because it is a pure price competitor, Fornell says.

“This proves price is not the leading indicator of customer satisfaction. Consumers are much happier when they purchase an item they really want and have a good experience doing so.”

ASCI’s Effect

While several retailers have seen falling stock prices over the past year, those that improved customer satisfaction were more favorably received by investors. On average, retailers with improving ACSI scores lost about 30% of their market value in 2008, while those with declining ACSI scores lost about 57%. By comparison, the S&P 500 index dropped 38%.

But even with increasing levels of customer satisfaction, most retailers are facing a gloomy future. Sales during the holiday season were dismal, as retail industry sales for December dropped 2.2%, according to the National Retail Federation. Drastic discounting was the only thing that prevented consumer demand from falling to an unprecedented low, Fornell says.

“For consumer spending to rebound, two conditions must be met: Consumers must be favorably disposed to spend and have the means to spend,” Fornell says. “The good news from ACSI is that the first condition has been met–customer satisfaction is looking up. But it remains to be seen to what extent the government stimulus plan will help translate stronger satisfaction into increased consumer demand.”